In the rush to complete tax-saving investments at the end of the financial year, many taxpayers choose instruments that do not match their long-term financial goals.
Key Points
- With March 31 approaching, delaying tax-saving investments can lead to rushed and poor decisions.
- Investments may be wasted if you end up opting for the new tax regime.
- Choose products aligned with goals-retirement, wealth creation, income, or protection.
If you are in the old tax regime and have not yet completed your tax-saving investments for the current financial year, you should act now.
Barely days remain before the March 31 deadline. Last-minute decisions can lead to costly mistakes.
Assess product suitability
In the rush to complete tax-saving investments at the end of the financial year, many taxpayers choose instruments that do not match their long-term financial goals.
"Instead of evaluating suitable investment options, they may end up purchasing low-return products, such as traditional life insurance policies, primarily for the purpose of claiming tax deductions," says Rupali Singhania, founder, Areete Consultants.
Products that are hard-sold get purchased at the last moment, without proper assessment of whether they are suited to the buyer's financial goals, investment horizon, or risk appetite.
Many taxpayers also rush into buying tax-saving products without assessing whether they fall under the old or the new tax regime that year.
"They sometimes make tax-saving investments that prove redundant because they end up choosing the new tax regime," says Deepesh Raghaw, a Sebi-registered investment advisor.
Factor in existing investments
Before making fresh Section 80C investments, investors should first account for tax-saving investments and payments already made.
"Employees already have provident fund contributions, which may be considerable in the case of those who have been working for some time, so only the balance amount may need to be invested," says Arnav Pandya, founder, Moneyeduschool.
"Home loan principal repayments, school fees of children, and premiums being paid on existing insurance plans all count towards Section 80C investments," says Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors.
This could at times mean that no additional investment is required.
Map investments to financial goals
All tax-saving investments should support financial goals.
"Investors planning for retirement and comfortable with long lock-ins may opt for Public Provident Fund (PPF) or National Pension System (NPS). Young investors with a long horizon and higher risk appetite should consider equity-linked savings schemes (ELSS) to earn higher long-term returns along with tax benefits," says Singhania.
"Life insurance premiums fit the goal of protecting life. The Senior Citizens' Savings Scheme (SCSS, 8.2 per cent interest, taxable) can fulfil senior citizens' need for regular income," says Pandya.
Sukanya Samriddhi Yojana (SSY, 8.2 per cent tax-free interest) may be used to meet a girl child's education and marriage goals.
Tax savers must support asset allocation
Inappropriate asset allocation means an investor could be taking too little risk (which could affect long-term returns) or too much risk.
Since many tax-savers are debt products, investors could inadvertently make their portfolios debt-heavy.
"Someone who has worked for 15-20 years may already have a large provident fund corpus. They may also have a PPF corpus," says Pandya.
Those overweight on debt instruments can choose ELSS or take a higher equity exposure in NPS. Those with sufficient equity exposure may go for PPF, SSY, SCSS, or a five-year tax-saving fixed deposit (FD).
Meet insurance needs first
Younger investors should meet their insurance needs first before turning to investment products.
"Determine how much life (term) and health insurance your family needs and buy them," says Pandya.
Instead of buying a term plan, many go for insurance-cum-investment plans. Financial planners suggest keeping the two separate. Insurance needs change over time.
"A term plan can be discontinued once the need for it no longer exists," says Dhawan.
A person's tax regime may also change over time.
"An instrument chosen for tax saving in one financial year may prove less suitable if you shift to a different tax regime the following year. Separate products can help you align better with changing needs," says Dhawan.
Mixing insurance and investment creates other risks as well.
"Returns could be sub-optimal. The bigger risk is that you could remain under-insured," says Raghaw. Traditional plans also impose heavy exit penalties.
"Exiting a traditional plan before two years means you get nothing back. Even if you exit after two years, the exit values tend to be punitive for several years," says Raghaw.
Pay heed to lock-ins
Tax-saving products come with lock-ins. Investors must ensure they can manage the lack of liquidity for that period. ELSS has the shortest lock-in of three years.
"Since it is an equity instrument, you should hold it for at least seven to 10 years, or risk earning sub-optimal returns," says Dhawan.
PPF has an effective lock-in of 15 years, with partial withdrawals allowed from the seventh financial year. SSY has a lock-in of 21 years, or until marriage after the age of 18.
Partial withdrawal is allowed once the girl child has passed class 10 or attained the age of 18.
In NPS, the lock-in is 15 years. A tax-saving fixed deposit has a five-year lock-in.
"Individuals who may need funds soon should avoid locking a large portion of their savings in long-term instruments like PPF and NPS," says Singhania.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Feature Presentation: Aslam Hunani/Rediff
© 2026